Attention: The Status of Facebook’s IPO

Image from: mkabakov / Shutterstock Facebook revolutionized the Internet. There is no doubt in anyone’s mind that the social application has drastically altered the way human beings interact. As of February 4th Facebook boasts 845 million users worldwide. On February 1, 2012 (also Facebook’s 8th birthday), Facebook filed for an IPO (initial public offering). The 5 billion dollar IPO is greater than that of Google’s 1.7 billion in 2007 and will

Facebook revolutionized the Internet. There is no doubt in anyone’s mind that the social application has drastically altered the way human beings interact. As of February 4th Facebook boasts 845 million users worldwide. On February 1, 2012 (also Facebook’s 8th birthday), Facebook filed for an IPO (initial public offering). The 5 billion dollar IPO is greater than that of Google’s 1.7 billion in 2007 and will be the largest ever IPO of an internet based organization. Speculation surrounding the valuation has placed the company between 75 and 100 billion dollars. Most news sources have speculated that the company will start trading in May 2012. Last year, Facebook generated 3.7 billion dollars in revenue, and 1 billion dollars of profit.

85% of this 3.7 billion dollars of revenue comes from advertising, which is certainly the most controversial and profitable aspect of the website. The remainder comes from social gaming (12% of revenue from gaming company Zynga) and miscellaneous fees. The primary critiques of the organization concern its maturation over the next few years, which many analysts have hypothesized will be a turbulent determination of true success for the company as a publicly traded commodity. Many critics are saying that the website is slowing down, and that the advertising potential of the company isn’t as profitable or disruptive as paid search programs from Google. These views are short sighted. It is extremely important to remember that this company’s advertising strategies are in its infancy; the company has relatively little mobile advertising revenue and Microsoft, who owns 1.6% of Facebook, is currently selling the majority of ads on the social network . The creative applications of advertising within Facebook will be the determinant of the company’s success in the years to come. Many of these critics have also stated that Facebook’s growth will plateau and that, in a short period of time, the advertising revenue of the company will cease to grow. This is shallow thinking, as the organization is sure to focus on advertising innovation to drive revenues in the future. The activities of liking, commenting, and sharing are still in their infancy. The value of these types of activities will surely increase over time as will the advertising budgets that companies devote to Facebook. Advertising is not the only thing on Facebook’s mind.

Popularity

To truly gauge the power and influence of a website, a thorough review of website performance and user behavior is necessary. Compete data is the perfect measure of user behavior due to the unparalleled panel size (2 million) and the ability to go into a deep analysis of the clickstream of user activity. The data shows that the company has experienced non-stop growth in the US non-mobile market over the past 2 years, particularly over the middle-aged female demographic of users, where it continues to gain popularity. The Unique Visitors metric show this trend of overall popularity over the course of the previous two years:

As of January 2012, Facebook has 168,000,000 unique visitors which represent about 85% of the total internet browsing population of the US (~200 million). The website is inarguably popular and is second only to Google.com in the amount of people that visit the site at least once each month.

Engagement

One of the primary concerns for investors and users alike has been the recent changes and developments within the user interface. As with any new feature releases, portions of the user base are critical about recent UI changes, especially because they involve the most popular and widely used social application in the world. On December 15, 2011 Facebook released the timeline feature, which might be the most drastic alteration to the user interface that the application has undergone. People are now able to add life events previous to the existence of Facebook, and are also able to create customized and creative timeline photos. Using time as a basis of measurement and as a reference point is ingenious, because it is the most valuable resource at the user’s exposal. The timeline feature has effectively made the application timeless by allowing for people to easily search through the history of their friends and families.

Another recent feature release, the “ticker” (the feed on the right of the application) has enormously changed the way users can interact with brands and friends in real-time. Since the feature release, the news feeds of accounts will more closely resemble a customized social newspaper that shows activity that is literally relevant to the second. This significantly adds to the virality of Facebook posts by creating more effortless and time-sensitive sharing and making the application even more sensitive to the limited and erratic attention of its users. The release of these new features has started an increase in the engagement of its users, which was dropping prior to the end of 2012. We can analyze the user engagement over time with a comparison of the attention and average stay metrics:

There is a peak in engagement that occurred about one year ago for Facebook, as well as recent increases in user engagement, which promote the idea that application usage is once again on the rise. When analyzing the ability for a website to engage its visitors, attention and average are the primary metrics used to indicate how appealing using the application can be. The attention metric compares the average time on a website to the total time spent on the Internet as a whole. Facebook’s attention is an excellent gauge of the power and influence that the network has over the Internet. In the case of Facebook, this number is currently about 14% (as of January 2012) and peaked at over 20% a little over a year ago. This amount of outreach and influence is incredible, as there are millions of websites that are competing for the attention and time of users; a 14% market share of that attention is monumental. The recent drops in the attention metric are not simply an indicator of the engagement of Facebook; it also is a comparison of the engagement of users on Facebook against all websites on the Internet. Therefore, this is also a measure of how the online networking industry has grown; companies like Twitter and Linkedin are surely striving to engage the users of Facebook with their own applications. Essentially, attention gives insight into the increasingly competitive field of social networking using Facebook as a reference point. For further and more detailed analysis about the engagement of the website, data that explores specific user activity on the application is necessary. For this, a more detailed investigation of the clickstream of Compete’s panel activity will show what exactly users are doing within the application.

User Activity

In January, Compete measured the activity of the Facebook users to assess how engaged users actually are within the application. Compete has an enormous amount of data on user activity within Facebook; here is a glimpse of that data. Keep in mind that this is user activity over the course of the month of January, 2012:

The bottom line is that people are still being engaged by the application, and despite enormous feature changes in 2011, users are continuing to use the application for various activities. No doubt these numbers will rise as the website’s users settle into the new interface. What is particularly significant is that 2% of users actively “like” their favorite brands, which proves that brands absolutely need to pay attention to the Social Network and ensure that their users who are consistently on Facebook can interact with their brand in meaningful ways.

The Impact

This influence, popularity, and engagement of Facebook can be most adequately explained by the increasing popularity of social photo sharing (consider the recent rise of the photo bookmarking application Pinterest.com). People are interested in what they can visualize and share with their friends on a website, and Facebook is sure to continue to take advantage of this. I would even suggest that the timeline feature is an essential development because it allows for the fastest viewing of personal history through the photos that are shared on the application. There are 50+ billion user photos in the application, over 1.5 million gigabytes of photo storage (1.5 petabytes), and millions of Facebook servers dedicated to this ability to share photos. I think it is safe to say that this is a primary driver behind the popularity of Facebook. Consider that Mark Zuckerberg created “The Facebook” after an experiment where he hacked into Harvard’s computer network, copied houses’ dormitory ID images, and created Facemash, a photo comparison application in which users would rate which of two people was more attractive.

There is no doubt that the future of Facebook will be decided by the users of the application. However, it is absolutely up to the social giant to empower its users to interact freely with the brands and people that they are interested in. The remaining question is how the company will grow revenues in the most profitable and efficient way possible. This will most likely be determined by the creativity and effectiveness of the advertising on the social network. Facebook has redefined the Internet community and the way that people can interact with each other, brands, and the things that they “like”. The real question is how the application will evolve in years to come to facilitate increase the frequency of these types of interactions.

About Elliot Telford:Elliot Telford is the Product Manager for the Compete API and Compete PRO International. As a Product Manager, Elliot focuses on user experience, user research, and user centric product enhancements. After many months of client support for Compete PRO, Elliot has moved into the product space to continue to improve experiences for his clients on a higher level. As the API Product Owner, Elliot is constantly looking for ways to create and improve integrations to provide more value to customers with Compete’s best-in-industry data. Connect with Elliot on Twitter @ElliotTelford